UK trade with China – what are the prospects for a post-Brexit deal?

One of the many consequences of the UK’s decision to leave the European Union is that it will, for the first time in decades, be free to negotiate its own high-level economic agreements with other countries. With any deal with the EU some way off, it’s likely the UK will initially look at other major trading nations, including China – a country that outgoing Prime Minister David Cameron has targeted in recent years.

British Trade Minister Lord Price recently talked up the prospects of a trade agreement with China at a post-referendum event in Hong Kong. ‘I’m optimistic about the future: particularly in helping create a second Elizabethan Golden Age,’ he said. ‘There are opportunities in the East, where for centuries British merchants have traded with China for tea, white gold and porcelain, as well as with Japan, South Korea and other Asian nations.’

Cut in tariffs would benefit both countries

If a favourable deal can be negotiated it would represent a significant victory for those who argued in favour of Brexit. But there is talk that the government may want to see evidence of further Chinese investment in the UK, including in its energy infrastructure, before any deal is agreed.

In 2015 China’s President Xi Jinping made a state visit to the UK for the first time in a decade. Over a four-day trip, £30bn worth of specific trade deals were arranged which Mr Cameron claimed would create 3,900 jobs in the UK. This included a £6bn investment from China General Nuclear Power Corporation (CGN) in the new nuclear power plant at Hinkley Point in Somerset. Investing in the UK may be even more attractive now should the pound’s weakness continue.

Currently, many products from the EU and China are subject to a range of both import and export tariffs – the EU charges duties of 47.7 per cent on solar panels while China recently imposed tariffs of 46% on EU steel imports – so any reduction of rates with the UK could see both countries gain.

Deal with UK could help China’s talks with the EU

China is already the UK’s sixth biggest export market and accounting for 3.6 per cent of all goods and services. With a growing middle class – according to The Economist 225 million Chinese citizens now earn between $11,500 and $43,000 a year – there is potential for this to increase significantly.

For its part, China is likely to want to negotiate similar free trade agreements to the ones it has in place with Iceland and Switzerland, ensuring its exports remain competitive against other low-cost countries. This is a central tenet of the country’s One Belt, One Road initiative, built around finding overseas customers for industries that initially targeted the domestic market.

China is also becoming increasingly frustrated in its attempts to negotiate a wider free trade agreement with the rest of the EU, which have foundered around EU concerns over intellectual property, human rights and the dominance of Chinese state-owned enterprises with potential to distort entire markets, as seen in the recent crisis in the steel industry. In May, the European Parliament voted against granting market economy status to China due to its failure to hit obligations spelt out by the World Trade Organization; something that could also make it in China’s interests to strike an agreement with a post-Brexit UK.

The ‘situation in Western Europe will push China and the UK to make a trade treaty’, Xing Houyuan, vice-president of the Chinese Academy of International Trade and Economic Cooperation told government publication China Daily. It may be that such an agreement not only makes sound economic sense but would also suit the political agenda of both countries.